Diego Company manufactures one product that is sold for $73 perunit in two geographic regions—the East and West regions. Thefollowing information pertains to the company’s first year ofoperations in which it produced 56,000 units and sold 51,000units.
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| Variable costs per unit: | | |
| Manufacturing: | | |
| Direct materials | $ | 24 |
| Direct labor | $ | 16 |
| Variable manufacturing overhead | $ | 2 |
| Variable selling and administrative | $ | 3 |
| Fixed costs per year: | | |
| Fixed manufacturing overhead | $ | 784,000 |
| Fixed selling and administrative expense | $ | 672,000 |
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The company sold 38,000 units in the East region and 13,000units in the West region. It determined that $300,000 of its fixedselling and administrative expense is traceable to the West region,$250,000 is traceable to the East region, and the remaining$122,000 is a common fixed expense. The company will continue toincur the total amount of its fixed manufacturing overhead costs aslong as it continues to produce any amount of its only product.
14. Diego is considering eliminating the West region because aninternally generated report suggests the region’s total grossmargin in the first year of operations was $79,000 less than itstraceable fixed selling and administrative expenses. Diego believesthat if it drops the West region, the East region's sales will growby 5% in Year 2. Using the contribution approach for analyzingsegment profitability and assuming all else remains constant inYear 2, what would be the profit impact of dropping the West regionin Year 2?
15. Assume the West region invests $46,000 in a new advertisingcampaign in Year 2 that increases its unit sales by 20%. If allelse remains constant, what would be the profit impact of pursuingthe advertising campaign?
13. Prepare a contribution format segmented income statementthat includes a Total column and columns for the East and Westregions.
